New York-based Global X has launched six new US equity ETFs that employ options-based strategies to achieve specific outcomes such as generating additional income or managing downside risk.
Rohan Reddy, Research Analyst at Global X.
The suite is divided into three pairs with each pair of ETFs including an S&P 500 and Nasdaq 100 version of the same underlying options strategy.
The three options strategies are defined by Global X as risk-managed income, tail risk, or collar.
The S&P 500 ETFs have been listed on NYSE Arca, while the Nasdaq 100 funds have been listed on Nasdaq.
Each ETF comes with an expense ratio of 0.60%.
Rohan Reddy, Research Analyst at Global X, said: “By expanding our offering of options-based strategies, we’re able to continue to bring timely solutions that seek to generate additional income or manage market risk.
“Through this latest launch, we’re thrilled to add risk-managed income, tail risk, and collar strategies to our existing line-up of covered call ETFs to help investors navigate the current market landscape.”
Risk managed income
The Global X S&P 500 Risk Managed Income ETF (XRMI US) and Global X Nasdaq 100 Risk Managed Income ETF (QRMI US) utilize net credit collar strategies which consist of a covered call combined with a protective put.
Each ETF owns all the stocks in its reference index while simultaneously selling monthly at-the-money call options to generate income and buying monthly 5% out-of-the-money put options on the same index. The strategy effectively earns incremental income from the option contracts (the difference between the call option premium and the cost of the put option) but is exposed to the first 5% of losses on the reference index per month.
According to Global X, the ETFs may appeal to investors wishing to diversify their income-oriented portfolios without taking on additional interest rate risk.
Tail risk
The Global X S&P 500 Tail Risk ETF (XTR US) and Global X Nasdaq 100 Tail Risk ETF (QTR US) utilize protective put strategies. Each ETF owns all the stocks in its reference index while simultaneously buying three-month 10% out-of-the-money put options.
The strategy effectively offers upside potential while protecting against losses in excess of 10% over a three-month period; however, the cost of regularly purchasing put options acts as a drag on performance.
Collar
The Global X S&P 500 Collar 95-110 ETF (XCLR US) and Global X Nasdaq 100 Collar 95-110 ETF (QCLR US) utilize asymmetric collar strategies. Each ETF owns all the stocks in its reference index while simultaneously selling three-month 10% out-of-the-money call options and buying three-month 5% out-of-the-money put options.
Over a three-month period, the strategy offers a measure of upside potential, capped at 10%, while also mitigating downside risk by limiting losses to just 5%. Due to the asymmetric nature of the collar, its implementation is likely to result in a net drag on performance.